Wednesday, April 8, 2009

The recent headlines about Lawrence Summers had it all wrong. They announced with an implied breathlessness that he earned around $8 million last year -- much of it from the hedge fund D.E. Shaw. Here's what I would have written: "Man Takes More Than $7.9 Million Cut in Pay." Somewhere in the Diagnostic and Statistical Manual of Mental Disorders, the bible of shrinks, there should be an entry for "public servant." They are all, bless their hearts, a little nuts.

Arguably Richard Cohen is just best ignored as readership of the Washington Post oped pages rapidly approaches zero, but it is worth correcting the logic by which he decided that Larry Summers, one of President Obama's top advisers, is making a huge sacrifice by foregoing Wall Street millions.

All jobs carry a mix of pleasant and unpleasant aspects. Many people take relatively low-paying jobs, for example school teachers or social workers, because they believe that they are advancing a social purpose that they consider valuable.

Cohen does allow:

I don't mean to characterize these or other administration aides as the functional equivalent of Trappist monks, since they enjoy the attention, the power and -- above all -- the action. They are doing something substantive, important -- sometimes making life-or-death decisions and gaining, if they are lucky, a mention in a history book. It is not a life without any compensation.

I think both Cohen and Baker have forgotten something important, that it is the government service which, in many cases, enables the riches. To talk about Larry Summers' "sacrifice" without pointing out that he was one of Clinton's Secretaries of the Treasury is a major omission. Without his occasional forays into public positions, Summers stands as a major but by no means invaluable economist.

There is also the issue of access, that someone who has held the sorts of positions Summers has is more likely to have a voice in the halls of Congress. I obviously have no idea what he was doing that would induce a hedge fund to pay him more than $5 million last year, but it would be odd if some of that didn't come from his implied influence with politicians. And, when Summers is done working for Obama, there's a high probability that he will be that much more valuable, and able to command more money.

This is one of those classic fallacies of short-term thinking, similar to the idea that we can't restrict the pay of top bankers because "they'll take their talent elsewhere." That leads us to give failed financial wizards major dollars when they have most certainly not earned them, at least not lately. But no one is saying that their pay will be restricted forever, and the cachet that comes from turning around a bad situation will undoubtedly enhance their future prospects.